What happened
Shares of pharmaceutical company Viatris (VTRS) dropped 27.8% in 2021, according to data provided by S&P Global Market Intelligence. The company is barely over a year old as it was formed in November 2020, from the combination of Mylan and the Upjohn division of Pfizer. The stock reached a high of $18.71 in February 2021 but sank to a low of $11.96 that November. By the end of 2021, it had rebounded somewhat, closing at $15.53 on Dec. 31. So far in 2022, it has been as high as $15.34.
So what
Viatris has been characterized as a company that is a graveyard of old, off-patent drugs. It's true that, thanks to Upjohn, it has a lot of off-patent legacy drugs, but many of them, such as Viagra, Lipitor, and EpiPen, are still bringing in a lot of money. Lipitor earned $1.2 billion in sales through nine months while Viagra brought in $412 million and EpiPen earned $337 million in sales. In addition, the company says its portfolio has 1,400 approved molecules, many of them complex generics and biosimilars brought in from Mylan.
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Through the first nine months of 2021, Viatris' revenue was $13.5 billion, up 62.7% year over year. What concerned investors, though, was the company lost $0.83 in earnings per share (EPS) through nine months, compared to positive EPS of $0.48 in the same period in 2020. It was thought that Viatris' EPS would grow once the company saw cost-saving synergies with the merger, but that hasn't happened yet.
One area that is making investors happy is the company's commitment to its dividend. Viatris just raised its quarterly dividend by 9% to $0.12 per share, the fourth consecutive quarter it has raised its dividend. At the stock's current price, that means a nice yield of 3.13%, better than the 2.82% yield on the dividend of former parent company Pfizer and much better than the S&P 500 average dividend of 1.27%. Viatris' dividend is well covered with a cash dividend payout ratio (trailing 12 months) of 12.35% because Viatris has done a good job of increasing free cash flow, with $2.2 billion through nine months, a rise of 1,089%, year over year. The company also paid down $1.9 million in debt in the third quarter and said it plans to pay down another $6.5 billion of debt by 2023.
Now what
The pharmaceutical company's cost-cutting efforts, such as its shutdown of manufacturing plants in West Virginia, Puerto Rico, Ireland, and India, haven't shown up yet on its bottom line. Until that does, investors are likely to remain wary. Yes, the company does offer a nice dividend, but the company needs to develop enough new biosimilars and generic drugs to make up for the decline of sales in its branded drugs, or it will be viewed as a dividend trap by some.
However, it does have an enormous portfolio that gives diversity of revenue. No one drug is responsible for more than 10% of the company's revenue. With the revenue the company is producing, there's plenty left over for additional research and development of new drugs that will bring the company back into the black. At its current price, it could be considered a good long-term selection.
